Crude prices are seeing sharp price action as the US-Israel conflict with Iran continues to intensify. Brent Crude prices are hovering above $82 per barrel in early trade. Continued supply disruption across the Strait of Hormuz intensified market apprehension. Around one-fifth of the global crude oil demand is carried by ships sailing through this route.
Oil prices spike to new highs
Oil prices were trading near record highs. On Tuesday, Brent crude futures shot up to an intra-day high of $84/bbl. Meanwhile, US crude prices had surged to a high of $77/bbl.
“We see Brent Crude prices trading in the $75/bbl to $95/bbl range in the near-term with risks that oil prices could move towards the higher end of this range. “ ICICI Bank Global Markets said in a report.
It added that the risks of a possible break above $100/bbl threshold remain in place if there is a structural disruption to oil infrastructure
With no signs of de-escalation from either side, Warren Patterson, Head of Commodities Strategy at ING, says that escalating tension have increased risks to Persian Gulf energy supply, pushing oil, gas, and gold prices higher, tightening global fuel markets, and leading to stronger safe-haven demand.
He added that if these disruptions persist, there is scope for further upside in oil and LNG prices.
“A big concern is the disruption to oil and LNG flows through the Strait of Hormuz. Reports indicate that several ships have been attacked, leaving many shippers reluctant to navigate the strait due to the risks. Clearly, if these disruptions persist, it will leave further upside to prices,” Patterson said.
Middle East strikes intensify supply concerns
According to the BBC news agency, Israel is carrying out a fresh wave of strikes on Iran. With renewed tensions, reports have emerged that Tehran has halted energy exports from the Middle East.
Additionally, prices of commodities like sugar, fertilizers, and soy have witnessed a rise too, Reuters said. The news agency added that the current conflict risks triggering a spike in inflation, which could abruptly disrupt the economic recovery in Europe and Asia.
Iraq, OPEC’s second-largest oil producer, halted production at a major oil field on Tuesday following the closure of the Strait of Hormuz, as per a mix of media reports. Reuters, citing two Iraqi oil officials, reported that the country may cut down oil production by more than 3 million barrels per day if oil tanker movement is restricted at loading points.
Global energy producers halt output amid conflict
On Monday, Qatar, which houses some of the world’s biggest liquefied natural gas facilities, shut its gas facilities. Saudi Arabia too has suspended production at its largest domestic refinery, Reuters reported.
It added that Israel and Iraq’s Kurdistan have also shut units in response to the current conflict. Chinese refiners have also started shutting units owing to the geopolitical tensions, which are likely to affect crude supply.
India, one of the most dependent countries on oil and gas from the Middle East, has said it has started to ration gas supplies to industries after Qatar’s production was shut down, Reuters reported.